Fulfillment Cost Cuts Made Simple

When seeking to cut costs on fulfillment operations, its a good idea to take a three-pronged approach of shipping cost reduction, increasing sales volume, and shopping around for the best deal. However, quality of fulfillment service counts, too, not just price.

Instead, focus on first things first, keeping things simple if at all possible. Sometimes whats wrong with the machine is that its unplugged.

Reduce Shipping Costs
Reducing shipping costs is a no-brainer way to reduce the overall cost of fulfillment. Again, though, as simple as it seems, that doesnt mean its easy. When working with an outsourced fulfillment center, for example, reducing shipping costs may entail some renegotiation of longstanding contracts. While this may be uncomfortable, it may also be worth it. Partners are valuable, but business is business.

Saving five percent on shipping can add up quickly.

Smaller fulfillment centers simply may not do enough volume to attain the highest discount rates from mammoth companies like UPS and FedEx. In that case, it may be time to think about working with a larger fulfillment center that can get those bigger discounts.

If the smaller fulfillment company can do the job for less by some other means, such as combining shipments more effectively, then thats great.

But the point is, the job needs to be done for less--and can be.

Sell More Stuff
Similar to the above example, where bigger fulfillment centers get bigger discounts, one of the best methods of cutting costs on fulfillment is to get bigger. That is, sell more stuff.

However, its important to know the fulfillment cost for each product ahead of time. Obviously the price-per-product fulfillment cost varies according to destination, but metrics can be developed that make these figures real.

By thinking of the fulfillment cost as part of the product, better pricing decisions can be made. Know that number, even if its not 100 percent accurate. Now consider evaluating competitor prices and beating them. Studies show that a price beat of five percent can result in up to ten times the sales volume versus higher-priced competitors.

With numbers like those, it may be possible to grow out of the economic slowdown. But that conversation doesnt even begin until a per-product fulfillment cost is assigned.

Shop Around
Mama said it, and its true. Shopping around is a must.

Especially if products can be bunched into large containers and shipped as one package, shopping around for the best rates can result in significant cost savings on each deal.

Of course, shopping around can go wrong if price is the only consideration. Dont forget that fulfillment centers have to make payroll, too, so any deal that sounds too good to be true probably is.

Sources
MultiChannel Merchant Magazine
OptimaLogica.com